Nov 28, 2019 in Case Study

Being one of the most famous tech companies, Yahoo was founded by two Stanford students in the early 1990s, in particular 1994. David Filo and Jerry Yang were the first who made an attempt to create a search engine that would enable users to find any information they needed in the World Wide Web in a quick and convenient way. As most start-ups, they encountered some difficulties with finding investments, but venture capitalists of the time eagerly invested in Silicon Valley companies originated in Stanford University. Yahoo’s founders had a noble and promising idea, but something went wrong along the way, which allowed Google overshadow the first search engine company quickly and efficiently. In the recent past, the company lagged behind its key rivals and its financial indicators were alarming. Yahoo’s decline and lack of innovation may be attributed to leadership issues that have existed in the company almost for a decade now. Although the current CEO has managed to remain in the position far longer than her four predecessors, her leadership style seems to be highly controversial and it is still doubted that she can pull Yahoo out of the decline it has been facing and bring it back to the status of an innovating and exhilarating tech company it once used to be.

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Undoubtedly, there are several reasons why Yahoo has lost its status of a supergiant in the tech industry and has started lagging behind such companies as Google and Microsoft. One of the key causes of the current state of affairs can be traced back to bad managerial decisions and problems with leadership at the dawn of the company’s existence. Hence, Yang and Filo had a great idea to create a convenient and user-friendly search engine, but their ambitious plans went wrong when they started chasing huge profits and using pop-up ad banners (GigaP, 2011). According to Sue Decker, this chase coincided with the Yahoo’s stage of development called “Get Big Fast” (Entrepreneurship.org, 2013). During this stage, the company sought to attract as many customers as possible and at the same time generate profits. From 1995 to 2000, the company’s customer base grew from 0 to 300 million users, but the company’s initial ambition got lost and Yahoo respectively lost its status of a search engine company (Entrepreneurship.org, 2013). Phase 2 was called “Product Focus” and it lasted till 2006. During this period Yahoo introduced a wide range of various products in an attempt to lure back users who were flocking away to Google that epitomized their search needs without harassing them with rather annoying and dazzlingly flashy pop-up ads. According to Sue Decker, since 2006 and till the time of her tenure as the CEO the company was at the stage of “Customer Focus”, trying to reboot its products (Entrepreneurship.org, 2013). However, a comparative analysis of Yahoo and Google as two oldest remaining search engines shows that Yahoo has been plagued by bad managerial decisions for years (GigaP, 2011). Its recent prominent leadership issues are a logical outcome of the company’s history. After the loss of its status as a primary search engine company, Yahoo has struggled with its identity, in particular, with the senior managers’ inability to define this identity in clear and comprehensible terms that would enable the company to develop and follow a certain course of development. Instead, the company stopped using innovations, while its products became largely uncompetitive as similar products were offered by its key rivals; advertising agencies turned to Google, and Yahoo mail remained the main product that could generate traffic (GigaP, 2011). The board of directors and changing CEOs could not decide on whether the company ought to remain the tech company and start working on its improvement in this direction or become an online media company with its recent flashiness and orientation towards introducing media elements into its product portfolio. These problems continued for more than four years when Marissa Mayer was called the company’s CEO by the board of directors, which was a decision that startled the industry and was aimed at reinvigorating the failing company and bringing it back to life.

Hence, serious leadership issues at Yahoo that became visible to the public and testified to problems existing within the company started in 2007 (Bradt, 2012). It is a proven fact that new leaders always face difficulties and 40% of them statistically fail during the first 18 months, but the Yahoo’s statistics managed to overshadow this rate (Bradt, 2012). Since 2007 and up until Mayer’s appointment in 2012, the company had seven CEOs, including Terry Semel, Jerry Yang, Carol Bartz, Tim Morse, Scott Thompson, Ross Levinsohn, and finally Marissa Mayer who has so far outlived her four imminent predecessors (Bradt, 2012). Mayer inherited the company in a rather squalid condition and had to deal with her predecessors’ failures that had significantly impacted the company’s morale and its employees. One of the main problems resulting from leadership issues and incompetent management concerned a depressed corporate culture. At the time of Mayer’s appointment, the overwhelming majority of Yahoo’s employees seemed to “feel a lot like abused children” as they did not “know who to follow and what to expect” (Bradt, 2012). On the one hand, a good leader can use such situation to one’s own benefit and virtually restart the company by ensuring inspiration, hope, and confidence among employees. On the other hand, wrong decisions on behalf of a leader may result in adverse consequences, extremely high turnover, and dissatisfaction among remaining employees. Mayer’s success in this respect has been ambiguous all the way as her leadership style drastically differs from the one previously adopted by Yahoo’s managers, yet it is to be seen whether it is beneficial or not for the company in general.

Once, Susan Decker was supposed to become a CEO who would lead the company to success, but her first year was called “a year of stumbles” that finally resulted in her failure (Vascellaro & Lublin, 2009). Decker’s career at Yahoo was quick and impressive and she was expected to deliver near immediate astounding results on the post of the CEO. However, key problems of the company like the question of its strategic direction and problems with culture inside the company plagued her during the year and finally led to her dismissal (Vascellaro & Lublin, 2009). Another possible reason of her failure may be her financial background in a tech company where engineers seemed to be the main personnel members and the two sides failed to understand each other (Vascellaro & Lublin, 2009). However, the Board of Directors did not derive a lesson from Decker’s tenure and decided to appoint Carol Bartz who faced the same challenges and was quickly replaced as well. Initially, the board “was taken with her [Bartz’s] brash, no-holds-barred attitude”, but she was not the kind of the leader the company needed at the time (Nusca, 2011). The CEO seemed to be comfortable in the tech industry in general, but not in Yahoo and she failed to solve the company’s primary problem related to income. Moreover, she failed to solve the problem with a clear definition of the company’s identity and decide “what it stands for and where it wants to go, aside from profitability” (Nusca, 2011). It is the main reason she failed as a CEO within a relatively short period of time as “Neither Bartz nor other executives have proven able to coherently answer” the question of “What is Yahoo?” (Nusca, 2011). Hence, firing of Bartz came as no surprise and had even been expected and desired in the industry due to her incompetence and inability to revive Yahoo (Parr, 2011).

Prior to Mayer’s appointment, it looked like interim CEO Levinsohn could solve the problem with Yahoo’s identity and lead the shrinking internet giant to new heights. He joined the company in 2010 as an executive vice president responsible for the region of Americas and was deemed the main candidate for the position of a constant CEO thanks to managerial abilities and a clear long-term development plan (Carlson, 2013). He solved the problem with identity by presenting his vision of Yahoo “as the world’s premier digital media company” in 2011 at the shareholder meeting (Carlson, 2013). Levinsohn built a strong team of senior executives consisting of Jim Heckman, Shashi Seth, Tim Morse, Mickie Rosen, and Mollie Spilman. Levinsohn and his deal-maker Heckman managed to arrange several important deals, including the ones with Spotify, Microsoft, Google, and AppNexus, within a short period of time. Representatives of media, advertising, and entertainment industries recognized his benefits as a potential full-time CEO and started pressuring the Board of Directors to appoint him to this position and end confusion surrounding Yahoo (Carlson, 2013). For some time, everyone believed that the position would be given to Levinsohn as even the board chairman Fred Amoroso thought so and confirmed this fact in a private conversation with the Yahoo’s senior team. When being interviewed for the position, Levinsohn and his team presented a new direction for Yahoo that intended to seriously alter its image and make it a media company. He planned to stop competing with technology giants like Microsoft and Google and focus on the media side of the business. It would require shutting down several business units and allow reducing the staff by 10,000 employees, which would in turn increase EBITDA by 50% (Carlson, 2013). Being an interim CEO, Levinsohn started pursuing this direction by negotiating with Microsoft for an exchange of Yahoo’s search business for MSN.com and cash payments and debating with Google about turning over a share of Yahoo’s advertising (Carlson, 2013). However, this course of action did not impress the Board of Directors as much as Marissa Mayer who was lobbied for the position by board members Loeb and Wolf. Hence, Levinsohn lost the competition and decided to leave the company.

Marissa Mayer’s career is tightly interrelated with Google where she was among the first employees to join the company and has risen to the top position rather quickly. Her track record at Google is impressive even though it is full of controversies. It is rumored that she suffered demotion in 2010 when she was transferred to manage local and geo divisions of Google after remaining at the helm of the search engine business for many years, but Mayer herself does not think so. She claims that “she had gone from managing 250 product managers in search to supervising a much larger, more diverse group of managers – 1,100 people managing engineering, design, marketing, and sales” (Carlson, 2013). Thus, she was deemed a good candidate for the position of Yahoo’s CEO and ultimately won this competition. Her plan for the company included evolution of Yahoo’s products and change of the corporate culture by fixing it “with more transparency, perks, and accountability” (Carlson, 2013). After her appointment, she started implementing her plan to prove the Yahoo’s identity as a product tech company that placed customers in the center of its focus.

Her leadership style is said to be controversial as she is authoritarian and her guidance resembles strict teaching. She is direct and does not try to establish personal relations with her colleagues, which is why many senior executives left Yahoo within some months. She is obsessed with details and does not compromise about quality. Some of her decisions related to employees are met with resistance, for instance, her decision to ban working from home, which primarily angered working mothers at the company. However, “the changes that she brought – making food free, focusing on quality, shutting some things down, being open and honest during the Friday FYI meetings – all brought belief back for a lot of people” (Carlson, 2013). Her success has brought back not only belief, but also customers and income as Yahoo’s share price increased by more than 70% within a year of Mayer’s tenure (Efrati & Silverman, 2013). Despite frequent clashes between Mayer and her senior executives, they admit that they have “to give Marissa a lot of credit” and although they may not like her, “there’s no question” that “she has brought Yahoo back to life” (Carlson, 2013). Nevertheless, there are claims that her leadership skills are subpar at best because of her pedantic nature, loathing of feedback, micromanagement, involvement into all decision-making at all levels, and personal coldness when it comes to live communication with subordinates (Benner, 2014).

Most of the above features are true and many people have left Yahoo, but it is impossible to deny that those who have remained continue to reboot Yahoo under Mayer’s guidance. Besides, the company that has been suffering from the lack of oversight and quality needs someone like Mayer who would be attentive to all and everything and would be able to ensure that all processes and products are improved. Withal, her ability to run Yahoo and turn it back into a profitable and appealing company with many new products and improved old ones, which in turn has generated revenues and attracted new customers, proves that she continues to be an effective leader so far. Of course, it is to be seen whether she remains a good leader in the future and manages to give a new start for the internet giant, but it is undeniable that she should be given a lot of credit as a Yahoo’s CEO despite some shortcomings in her leadership style. In any case, no leader is perfect and Mayer still has a chance to learn a valuable lesson from her past mistakes and improve her leadership style as Yahoo seems to stay in the market at least for the foreseeable future.

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